Health-Care Provider Makes Comeback; Renews Its Focus
Foundation Health Systems Inc. stock rose from its proverbial sick bed during the second quarter to post the second-biggest, three-month gain among San Fernando Valley companies.
Amid a tech-stock tumble and a return to value investing, stock of the Woodland Hills-based health-care provider surged 74.2% for the quarter ended June 30.
The recovery was fueled by five straight quarters of positive earnings, a low price-to-earnings multiple and higher income from increased health-care premiums. Another contributor was ebbing fears over regulatory legislation and lawsuits, analysts and company officials said.
“The market rarely moves on one factor alone,” said Dave Shove, senior equity analyst at Prudential Securities Inc. in New York. “But the rising stock price is due generally to better fundamentals all the way around, including an improved legal and regulatory environment.”
Foundation stock closed June 30 at $13.94, well above the 52-week low of $6.25 last October.
It mirrors other companies in the health-care sector including Aetna, Foundation Health Systems and Wellpoint Health Networks Inc.--companies that also trended upward during most of the quarter.
For the first quarter ended March 31, Foundation reported net income of $34.1 million, compared to $28.5 million for the like quarter last year. Revenue increased 1.9% to $2.2 billion over the comparable period.
David Olson, Foundation Health Systems senior vice president of investor relations, said over the last year the company has renewed its focus on core business while becoming more fiscally disciplined.
*
Over the last 18 months, the company sold off unprofitable health-care assets in Colorado, New Mexico, Oklahoma, Texas and Washington to focus on California, Oregon, Arizona, Florida and the New York metropolitan area, Olson said.
Foundation, with a 12.5 price-to-earnings multiple, also decreased its debt-to-capital ration while increasing cash flow from $100 million in 1998 to $300 million last year, he said.
Those numbers include 7% to 8% higher annual premiums on health plans, government contracts and specialty services.
Analysts contend the improving revenue picture was not the only reason for the stock’s recent surge. Stock fund mangers and smaller investors, they said, have rotated into health-care stocks as a “safe haven” during a choppy market.
Aiding the positive investor sentiment has been helped by a June U.S. Supreme Court decision in which the justices rejected federal lawsuits as a way to reform health maintenance organizations, Olson said.
Stalled patient’s rights legislation in Congress also appears to be a factor.
“Some expansion of liability is something we’ve learned to live with,” Olson said. “It’s always something that investors are concerned about.”
Health Net serves nearly 2.2 million people in California and 5.3 million people nationally, according to the company. It is affiliated with nearly 45,000 doctors, more than 400 hospitals and 4,300 pharmacies.
The company, which employs 1,800 at its high-rise at 21600 Oxnard St., has been based in Woodland Hills since 1984.
Foundation Health Systems was formed in 1997 through a merger with Foundation Health Corp. and Health Systems International Inc.
Analysts’ consensus estimate for full-year earnings is $1.30 per share. In 1999, the company earned $1.21 before one-time charges.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Foundation Health Systems
Five straight quarters of profits, plus rising health insurance premiums, helped power up shares of this company by 74%.
*
April 3: $8
*
June 30: $13.94
*
Source: Bridge Information Systems
